Terra Firma takes Citigroup to court over EMI deal

Robbie Williams is one of the artists on EMI's roster. The music group was taken over in 2007

The private equity owner of EMI is suing Citigroup for £1.5bn after it accused the US investment bank of artificially inflating the price of the music publisher during a takeover two years ago.

Terra Firma, which bought the group behind Coldplay and Robbie Williams for £4bn in 2007, filed a lawsuit in New York over the weekend which alleges that Citigroup lied over the involvement of rival bidders to drive up the price of EMI. Terra Firma also alleged the bank later tried to drive EMI into bankruptcy to bring about a merger with rival Warner music.

The lawsuit follows a difficult two years for Terra Firma and its multi-millionaire boss Guy Hands following the purchase of EMI on the eve of the credit crunch. The recession and internet piracy has seen the music publisher's value plummet while it remains saddled with £2.6bn of debt.

The group is trying to find investors to inject further funds into the business. City pension funds, insurers and foreign banks have been approached amid fears that it will default on interest payments to Citigroup, which bankrolled the buyout.

A decision to sue in the New York courts is unlikely to have been taken lightly by Hands, who has a long relationship with the investment bank. However, relations have deteriorated since Hands failed to persuade Citigroup to write off £1bn of the EMI loan in exchange for Terra Firma pumping in another £1bn of equity.

The lawsuit alleges David Wormsley, the bank's senior London adviser, told Hands that Cerberus Capital Management was participating in an auction and Hands would lose unless he raised his offer.

It is also alleged that Citigroup rejected efforts to restructure EMI "to soften the markets" and push it into bankruptcy. As chief creditor, Citigroup could take control and sell it at a profit, Terra Firma alleged.

Citigroup maintains that it was legitimate to reject pleas to write off a debt for equity swap. It has vigorously rejected the lawsuit's allegations.